The cliché mantra of real estate is “location, location, location” and the home insurance sector should get more “advanced” in its assessment of locales according to LexisNexis Risk Solutions’ senior director of home insurance solutions, George Hosfield.
Case in point is weather-related water losses increasing 156% over the past five years, LexisNexis’s study found.
The main driver of these losses is apparently ice damming the Northeast, where snow melting on roofs gets trapped and leaks into the home.
“It’s highly volatile, they (brokers) want to take what they’ve learned from the last couple of years about heavy ice damming losses,” Hosfield said.
“They can mitigate that through pricing, they can mitigate that through stronger underwriting and inspections of the roof.”
Curiously, the same LexisNexis study found all other peril losses either decreased or remained consistent with previous historical patterns.
“Next year it might not be ice damming, it might be something totally different,” Hosfield said. “Where it leaves the insurance company is they need to be looking at their pricing at a very granular level on a geographic scale and a by-peril rating basis.”
Homeowners and insurers used to calculate the cost of premiums based on risk of the house burning down, another price calculating all other perils subject to a claim, then a catastrophe price added on to that, Hosfield explained.
However, over the past 20 years, the industry has moved towards underwriting on a by-peril basis, with more than half of policies in the US written that way.
In other words every peril, be it hail, fire or wind weather-related water or non-weather-related water, has its own price added together to calculate a premium.
“There’s been a spike (of losses) and that spike may or may not continue, we’re all dealing with this question of increased volatility in the climate,” Hosfield said.
Hosfield doesn’t believe the industry’s been blindsided, pointing to housing market returns, but does recommend caution.
“I wouldn’t cry that the sky is falling and that we’re going to be hit by a hurricane that’s going to destroy insurance companies,” Hosfield said.
“But there’s a little bit of a false complacency that can set in when we don’t have any major storms or catastrophes for a few years.”
Large scale catastrophes have happened at an increased rate in the recent past and Hosfield said that means they could happen in rapid succession again.
“Everyone in the industry can admit that we’ve seen some increased volatility in the climate that’s resulting in harder cold snaps, more tornados in various parts of the country and abnormal weather patterns,” Hosfield said.
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